Unleaded gas ends at lifetime high

Crude, natural-gas prices ease; SPR to the rescue

SAN FRANCISCO (MarketWatch) -- Unleaded gas futures closed at another record Wednesday, up nearly 6% with the gains fueled by a ninth-weekly decline in U.S. gasoline supplies and storm-related production outages in the Gulf of Mexico.

At the same time, crude futures ended under $69 a barrel on news that the White House will release some oil from the Strategic Petroleum Reserve. Natural-gas closed lower after trading in uncharted territory above $12 per million British thermal units.

"Investors remain preoccupied with the fallout of the storm that shut down about half the nation's refining capacity and about a quarter of domestic oil production," said Thorsten Fischer, an economist at Economy.com.

September unleaded gasoline traded at a record $2.90 a gallon and closed up 14 cents at $2.6145. Prices for the contract jumped over 20% on Tuesday and are up over 51% from the end of last month.

September heating oil closed down 2.29 cents at $2.053 a gallon, after trading at $2.085 earlier, an all-time high for the benchmark contract.

October became the lead-month for the petroleum products at the session's end. October unleaded gas closed at $2.2553 a gallon, up 5.56 cents and October heating oil fell 0.85 cent to $2.0765.

Crude for October delivery slipped 87 cents to close at $68.94 a barrel after tapping a high of $70.25. On an intraday basis, the record was Tuesday's $70.85. The contract is still up almost 12% for the month.

Rounding out the energy futures market, October natural gas closed down 18.7 cents at $11.472 per million British thermal units, but that's after an earlier climb to $12.25 -- a level the benchmark contract has never seen before. They're up 44% from a month ago.

Overall, the market realizes that the Hurricane Katrina's devastation at the Gulf Coast hasn't been factored into the nation's petroleum supply report -- at least not until next week's data.

Katrina's impact will only begin to show in next Wednesday's data, said Jason Schenker, an economist at Wachovia Corp.

And "some of the data is subject to revisions as some companies were prevented from reporting actual inventory data" because of Katrina's approach last week, said Fischer.

Nine-week gasoline stock fall

Earlier, the Energy Department said motor gasoline inventories fell 500,000 barrels for the week ended August 26 to total 194.4 million -- the decline was below most expectations, which had called for a decrease of about three times that.

Still, the fall marked a ninth-straight decline in the fuel's inventories, which have been falling since the week ended July 1, according to the government figures.

The American Petroleum Institute reported a heftier 1.7 million-barrel decline and tallied stocks at 197.1 million.

Crude supplies fell 1.5 million barrels to 321.4 million, according to the Energy Department. But they were up 1 million at 322.7 million, according to the API.

Distillate stocks were up 2.7 million at 135.2 million, the government data showed. The API reported a 4.4 million-barrel climb to 132.9 million.

Reserve release

High energy prices have been fueled by Katrina's disruption to oil and natural-gas production in the Gulf of Mexico.

As of Wednesday, 561 oil and natural-gas rigs and platforms were unmanned in the Gulf of Mexico, according to the Minerals Management Service. About 91.5% of the region's daily oil output has been halted, according to the MMS. That's an improvement from Tuesday's 95.2%. Daily natural-gas production is down by 83.5%, an improvement from Tuesday 88%, according to the MMS data.

The devastation in the Gulf has prompted the government to take action to ensure adequate supplies by approving the release some oil from the nation's reserve. See full SPR story.

"The move by the President to release SPR product will contain further price spikes" for crude, said John Person, president of National Futures Advisory Service. But only "as long as we see improvement in the restructure in the LOOP [Louisiana Offshore Oil Port] and Gulf of Mexico region refineries capacity ability to get back to operating within the next two weeks."

"This may help alleviate the short-term 'panic' in the market," he said. But the fact remains that some refineries aren't online, "therefore it will be hard to produce gasoline in the near term to keep pace with demand," he said.

Also, prices will only truly calm down if there are "no more events (weather, terrorist or other such issues such as strikes) that will cause more supply disruptions," Person said.

It's important to note that the market is still in the peak hurricane season, he said. "That means we are still on the defensive -- therefore prices will remain firm in the entire energy complex."

All in all, there is a "surfeit of worry over gasoline supplies to much of the U.S. and gasoline prices have acted accordingly," said John Kilduff, an analyst at Fimat USA.

Meanwhile, gold futures prices climbed after closing Tuesday at their lowest in a month. See Metals Stocks.

As for the Reuters/Jefferies CRB Index, the broad measure of commodity-futures markets stood at 329.4 points, down 0.5%, on the New York Board of Trade -- after tapping a fresh record of 334.3 earlier.

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